Aviva, the UK's biggest insurer, has backed out of a promise to give its 1m policyholders a £1bn payout, blaming the credit crisis and falling profits.

The insurance company said in the summer that policyholders would receive an average of £1,000 each as part of a deal to free up surplus capital that has been built up over several decades.

However, the company have said that in the current economic climate and due to the turmoil in the share markets it would not be prudent to go ahead with the payout.

Aviva's policyholders will now have to wait several months before they see the details of any new offer from the company.

We realise that this will be disappointing for our eligible policyholders," said a spokesman for Aviva.

"It does reflect the nature of the current exceptional investment market conditions. We expect to be able to update policyholders in the next few months."